How far will the inflationary growth of the stock market continue in 1402?
According to Iran Gate, the Tehran Stock Exchange’s overall index has reached a historical record of two million units while the Norouz holidays have not yet ended and the stock market is not yet active. This record, which was also repeated in the summer of 1399, has been registered in a different way this time and has failed to create the excitement of three years ago among Iranian shareholders.
According to most analysts, the Tehran Stock Exchange is currently facing a growth of over 50% caused by high inflation. It was expected to reach a much higher figure and see green signs on the stock market board. However, it seems that the Tehran Stock Exchange has recently managed to overcome obstacles and take the path of index growth.
What is inflationary growth?
The stock market is naturally a market where shares of various companies producing products or services are bought and sold. Therefore, the profit received by shareholders and market participants is directly related to the income of the companies present in the stock market.
In other words, as the income of a company whose shares are traded on the stock market grows, the value of its shares will also increase proportionally. In economies like Iran, which have been grappling with chronic inflation for the past half-century, one of the factors contributing to the growth of company income is inflationary jumps that occur at different intervals. This is because these companies, in the event of an inflationary jump, have the ability to sell their products or services at a higher price than before.
50% inflation in favor of stock market participants
Based on the provided explanations, it can be superficially stated that the intensity of inflation in any country can lead to an increase in stock prices. However, this rarely happens in very rare cases, but stock market participants always benefit from inflation over time.
But the point here is that not all stock market participants benefit equally from this event, because shareholders are categorized into different groups, with speculators and long-term shareholders being among the most important. In situations where inflation grows at such a high rate, the stock market’s return rate naturally increases suddenly. However, a group of stock market participants engaged in speculation see a very hot and vibrant market in these conditions.
Although individuals who view stocks as a long-term investment also benefit from this situation, it can be said that their main benefit is the stability of their asset value rather than net profit. This is why stock traders, who constantly fluctuate in the market, benefit the most from inflationary conditions in the country.
However, it should be noted that any speculative activity in the economy of Iran is fundamentally beneficial. From the currency and gold markets to real estate and stocks, all are subject to this principle. But the point here is that these activities lead to the destruction of the economic infrastructure and undermine the foundation for any stable and constructive investment. Unfortunately, these types of activities are one of the important characteristics of economies facing chronic inflation, and until a solution is found, they will be inevitable.
Which stocks are better for the future
Considering the points mentioned and the global market conditions, it can be said that the Tehran Stock Exchange is still poised for growth. However, there are risks such as fluctuating regulations, price controls, trading restrictions, political developments, Iran’s nuclear situation, and overall market threats. Nevertheless, it seems that commodity-based stocks and even the Iranian currency will have much better days ahead.
On the other hand, some experts believe that despite the government’s claim to stabilize the official exchange rate within the range of 28,500 tomans, it is forced to reduce the gap between the semi-official exchange rate and the free market rate. If this happens, naturally the situation for export-oriented sectors will improve in the market.
Although it is unlikely that banks and insurance companies will face a significant leap due to the complete blockade observed in the nuclear negotiations, considering the mentioned factors, it is likely that all stock groups in the Tehran Stock Exchange will see greener days ahead.
This outlook is predicted for stocks such as petrochemicals, steel, cement, food, and mining. However, in an economy like Iran, everything happens in the moment, and a government decision or an explosion of a bomb in neighboring countries could completely change the course of the Tehran Stock Exchange.
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